The Central Bank of Cyprus announced an increase in the countercyclical buffer rate for financial institutions on Tuesday, attributing the adjustment to a rise in cyclical systemic risks and reputational concerns. The rate on Cyprus exposures has been elevated to 1.5 percent, up from the previous 1.0 percent, with the new rate set to be implemented from January 14, 2026.
Despite a positive economic outlook, the bank underscored an elevated potential for severe global economic disruptions that could adversely impact Cyprus's macroeconomic landscape and its banking sector, largely due to geopolitical developments and market volatility. The bank stated, "By increasing the CCyB rate, we are channeling a portion of the banks' profits towards enhancing their resilience. This move creates a larger reserve of loss-absorbing capital during periods of crisis and stress, thus ensuring the continuous provision of credit to the real economy."
According to the Bank for International Settlements (BIS) in Basel, the countercyclical capital buffer is designed to ensure that banking sector capital requirements are reflective of the macro-financial environment. The BIS outlines that the primary aim of the CCyB is to use this capital buffer to achieve the broader macroprudential objective of safeguarding the banking sector from the consequences of excessive aggregate credit growth, which is often linked to systemic risk escalation.
